Hi!!! Here I post a brief introduction to what Business is related to. I want to know you a little better so I ask you to share with me your expectations for this year. I hope you enjoy it!

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SENIOR 4 – Período de Orientación y Evaluación Febrero 2016

Here you can find the “Esquema de Contenidos”, “Plan de Trabajo” and “Assignments for Terms 1 and 3” for SENIOR 4 . FEBRUARY 2016


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Senior 5 – Business Studies – Período de Orientación y Evaluación Diciembre 2015

Business Studies S5 – Esquema de contenidos nodales – Dic 2015

Business Studies S5 – Plan de Trabajo – Dic 2015

Activity 1st Term – Business S5

Activity 2nd Term – Business S5

Activity 3rd Term – Business S5


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Senior 3 – Período de Orientación y Evaluación Febrero 2016

Here you can find the “Esquema de Contenidos”, “Plan de Trabajo” and “Assignments for Terms 1 for SENIOR 3


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Sources of finance


leasing: A legal document (contract) outlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid.

hire purchase: Under this  contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid.

debt factoring: the company has the opportunity to sell invoices of customers that owe money to factoring houses, which provide cash but less than the total debt of that customer invoice.

start-up capital: the capital needed by an entrepreneur to set up a business

working capital: current assets – curent liabilities. The capital needed to pay for raw materials, other direct costs, some indirect which are made within a year, and credit offered to customers.

liquidation: not to confuse with liquidity. When a firm ceases trading and its assets are sold for cash to pay suppliers and other creditors.

issue shares: public issue by prospectus and arranging a placing of shares with institutional investors without the expense of a full public issue

venture capital

crowd funding: The use of small amounts of capital from a large number of individuals to finance a new business venture.


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Senior 5: Costs

Costs: any expenditure made in order to produce during a period of time

Direct cost (DC): costs that could be associated, identified, allocated straight with each unit of a product

Indirect cost (IC): costs that cannot be associated with any specific product

Fixed cost (FC): any costs regardless the production level (Q)

Variable cost (VC): all costs that vary together with the output (Q)

Total Cost: VC + FC = DC + IC

Marginal cost: the extra cost because of producing an extra unit of production

Total revenue (TR): the income of a business in a period of time because of the sales of the output

Margin of safety: the amount of production by which the sales level exceeds the break even output.

Full Capacity: maximum level of production for the level of fixed capital installed.

Break-even point: is a combination of an output and total revenue from which the company will start having profits.

Break-even output: The level of output at which Total costs =Total revenue.

Break-even chart: This is a graph which shows the costs and revenue of a business and the level of sales that must be made to break even.

break even chart

vc linearLinear VC: whenever the production increases the VC will increase but at a same rate (not realistic)

Ctvc More realistic VC: when the production increases at the beginning the costs will increase but each time a bit less up to a point in which the efficiency of the fixed capital will be maximum and with each new unit of production the marginal cost will increase each time a bit more.

A more realistic version of the break even chart:


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Senior 3 -Paper 2 style section 1 solved

Look at Delfina`s blog


Disadvantages of sole trader

-if derek wants to share his ideas with someone else he won`t be able to do it.

-it has unlimited liabilities

-sources of finance will be limited, few

Advantages of private limited company

-more legal regulations and paperwork compared with partnership but less than for public limited companies

-continuity: the shareholders have the possibility to sell shares whenever they want regardless the creation of new paper worl. The only condition is that the other shareholders will have to agree.

-limited liabilities: in case derek`s company fails, it will not have to pay the company`s debts with his own assets just with the ones of the company

Disadvantages of private limited company

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Senior 5 Financial Ratio analysis

Profitability ratios

ROCE (return on capital employed) = net profit after tax/ capital employed (long term liabilities + equity)

It measures how good was the investment assuming only one year as the paying back money for the capital employed in the investment. Depending on the kind of investment each of them will has its own maturity horizon. Another limitation is that if you use this information to forecast in how many years your are paying off the investment then you will be assuming that the behaviour of the investment cash-flow is lineal and its not. It has a similar behaviour as the product life cycle.

gross profit margin = gross profit / sales revenue

net profit margin = net profit after tax / sales revenue

In these previous cases you have an idea on which percentage of your sales will be considered profits which at the end will be more investment for the company (retained profits) or more dividend paid to the shareholders which have invested in the company.

In the first one you could have a good idea of the role of the direct costs and in the second one of the total costs of producing.

Liquidity ratios

They will show how good is the company is in facing its close due dates liabilities. The ability to pay back its short-term debt.

current ratio = current assets / current liabilities

acid test ratio = (current assets – inventories) / current liabilities

The result should be near one. Even-though, this is a fast way of getting how liquid is the company, the figures for a balance sheet show only how is the situation in one moment at the end of one year this figures don´t tell us anything important about which was the dynamic of these figures during the year.

Other limitations

These ratios say something about the company that has already happened but most of the users of the information would like to know things about the future of the company. Some inter annual comparison will be affected by inflation, which could be more or less impossible to discount. There are some methods of valuing inventories or fixed assets which will lead to unfair comparisons between companies. For making decisions and concluding on diagnosis of the company the user will need to have more non quantitative sources of information apart from reading the notes to the financial statements.

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Senior 5 financial statements: Cash flow statement

In this statement the company will register a break down of the main cash outflows and inflows.

Cash outflows

All of the expenditures in raw materials or finished goods for the period could have been paid in cash (outflow) or just increasing the credit with the supplier, this idea is linked with the costs of goods sold and with the overheads.

All of the cash payments during the period to employees (wages, salaries), shareholders (dividends), government (taxes), financial creditors (interests) will be registered as a cash outflow. At the same time during the period you could increase the company´s debt with any of the previous stakeholders by just delaying the cash payment.

All purchased fixed assets in cash will be registered in this statement. Remember that part of the value or the total value could be financed with the seller of that asset or with a financial institution in that case that value will increase the liabilities of the company and is no a cash outflow.

All debt cancelled during the period will be a cash outflow.

Cash inflow

Sales in cash

Debtors (customers that by to the company with credit) pay their debt

Issuing new shares

New debt made cash

Selling fixed assets

Cash flow cycle

A typical cash flow cycle explains how the cash gets in the company by the sales of finished products to the customers, then how that cash is used to pay for raw materials, employees, the government. The key idea here is to understand that due dates of payment to any of the liabilities of the company not necessarily will match a cash stocked or a cash inflow since the company just sold a product. Therefore usually in order to pay the company will have to find quickly a financial source like an overdraft with the bank. And if at some point in time the company has a lot of cash that will be useless in the short run, the wise decision is to invest this money until the company will need it again or pre cancel any of the liabilities if the company could deal with a discount.

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Senior 5 Financial Statements: Income Statement

1) Total Revenue / Sales turnover / Net sales : is the value of the total amount of goods and services sold during a period of time (accounting year, quarter)

2) Costs of goods sold/ sales: is the direct cost of the goods that were sold during the period of time

P1) Gross profit: 1) – 2)

3) Overheads/ expenses: all indirect costs of production plus any other expense for the operations during the period of time including depreciation (the loss of value of fix assets)

P2) Operating profit: P1 – 3)

1.1) Non-operating income/ non-trading income: these are profits because of transactions not connected with the main product of the company, an example could be the after selling financial securities that from other companies that this company has purchased before.

4) Interests: all the interest paid because of debt during the period of time

P3) Net profit before taxes: P2) – 4) + 1.1)

5) Taxes

P4) Profit for the year / Net profit after taxes P3) – 5)

6) Dividends to shareholders: a percentage that is paid from P4) to the owners of the company

7) Retained profits: a pecentage of P4) that is kept to reinvest for the next period, is a reserve, and is increasing the total capital invested.

Depending on the country and legislation earnings = profits = income

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